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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[ x ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended SEPTEMBER 28, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ________ to _________.
Commission file number 0-25560 .
CELERITEK, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0057484
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3236 SCOTT BLVD., SANTA CLARA, CA 95054
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Address of principal executive offices) (Zip code)
(408) 986-5060
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: [ X ] Yes [ ] No
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
COMMON STOCK, NO PAR VALUE: 7,126,270 SHARES AS OF OCTOBER 26, 1997
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CELERITEK, INC.
PART I: FINANCIAL INFORMATION PAGE
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Item 1: Financial Statements (Unaudited) 1
Condensed Consolidated Balance
Sheets: September 30, 1997 and March 31, 1997
Condensed Consolidated Statements of Income: 2
Three and Six months ended September 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows: 3
Six months ended September 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 4
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 5 - 10
PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 11
Item 6: Exhibits and Reports on Form 8-K 12
SIGNATURES 13
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CELERITEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, March 31,
1997 1997
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(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 4,373 $ 7,033
Short-term investments 8,750 8,200
Accounts receivable, net 11,698 10,111
Inventories 10,156 7,318
Prepaid expenses and other current assets 538 270
Deferred tax assets 2,144 2,144
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Total current assets 37,659 35,076
Property and equipment, net 6,862 6,038
Other assets 91 43
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Total assets $44,612 $41,157
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LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 131 $ -
Accounts payable 4,123 3,889
Accrued payroll 1,463 1,190
Accrued liabilities 3,637 3,594
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Total current liabilities 9,354 8,673
Long-term debt, less current portion 542 -
Shareholders' equity 34,716 32,484
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Total liabilities and shareholders' equity $44,612 $41,157
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Note: The balance sheet at March 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
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CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
----------------------------------------------
1997 1996 1997 1996
------- ------- ------- -------
Total net sales $13,529 $11,657 $26,124 $23,175
Cost of goods sold 8,591 7,355 16,814 14,607
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Gross profit 4,938 4,302 9,310 8,568
Operating expenses:
Research and development 1,270 1,050 2,478 2,131
Selling, general and administrative 2,090 1,705 3,885 3,574
------- ------- ------- -------
Total operating expenses 3,360 2,755 6,363 5,705
Income from operations 1,578 1,547 2,947 2,863
Interest income (expense) and other, net 121 109 269 253
------- ------- ------- -------
Income before income tax 1,699 1,656 3,216 3,116
Provision for income taxes 646 630 1,207 1,185
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Net income $ 1,053 $ 1,026 $ 2,009 $ 1,931
======= ======= ======= =======
Net income per share $ 0.14 $ 0.14 $ 0.27 $ 0.26
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Shares used in per share calculations 7,462 7,336 7,414 7,330
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See accompanying notes.
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CELERITEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
Six Months Ended
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September 30, September 30,
1997 1996
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OPERATING ACTIVITIES
Net income $ 2,009 $ 1,931
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and other 1,132 981
Changes in operating assets and liabilities (4,143) 3,163
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Net cash provided by (used in) operating activities (1,002) 6,075
INVESTING ACTIVITIES
Purchase of property and equipment (1,956) (1,938)
Decrease (increase) in other assets (48) -
Purchases of short-term investments (8,330) (9,325)
Sales of short-term investments 7,780 8,175
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Net cash used in investing activities (2,554) (3,088)
FINANCING ACTIVITIES
Borrowings on long-term debt 673 -
Proceeds from issuance of common stock 223 300
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Net cash provided by financing activities 896 300
Increase (decrease) in cash and cash equivalents (2,660) 3,287
Cash and cash equivalents at beginning of period 7,033 3,311
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Cash and cash equivalents at end of period $ 4,373 $ 6,598
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $1,228 $804
Interest 4 -
See accompanying notes.
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CELERITEK, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three- and six-month period ended
September 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended March 31, 1998. This financial
information should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended March 31, 1997.
2. INVENTORIES
The components of inventory consist of the following:
September 30, March 31,
1997 1997
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(In Thousands)
Raw materials................... $ 4,228 $2,751
Work-in-process................. 5,928 4,567
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$10,156 $7,318
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3. NET INCOME PER SHARE
Net income per share is based upon the weighted average number of
outstanding shares of common stock and dilutive common equivalent shares
from stock options (using the treasury stock method). The difference
between primary and fully diluted net income per share is not material
for any periods presented. In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, "Earnings per Share", which
the Company is required to adopt on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute
earnings per share and restate all prior periods. Under
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the new requirements for calculating basic net income per share, the
dilutive effect of stock options will be excluded. Basic net income per
share computed in accordance with the new statement would have been $.01
greater for each of the quarters ended September 30, 1997 and 1996, and
$.01 and $.02 greater for the six month periods ended September 30, 1997
and 1996, respectively, than the net income per share as reported.
Diluted net income per share computed in accordance with the new
statement approximates net income per share as reported.
4. ACCRUAL
During the quarter ended September 30, 1996, the Company recorded a
provision of $800,000 for potential vendor cancellation claims related
to a delayed commercial contract.
5. LINES OF CREDIT
On September 12, 1997, the Company extended and amended two revolving
lines of credit. The first line of credit for $4,000,000 will expire on
September 11, 1998 and will bear interest at the bank's reference rate
(8.5% at September 30, 1997). The second line of credit is for
$1,000,000 and will also expire on September 11, 1998. On March 11, 1998
and September 11, 1998, any outstanding balance on the second line of
credit will be converted to a term loan of thirty-six months. Borrowings
under the second line of credit and term loan will bear interest at the
bank's reference rate plus 0.5%. The loan agreement requires the company
to maintain certain financial ratios, profitability levels, a minimum
tangible net worth of $33,000,000, and limits the payment of dividends.
As of September 30, 1997, the Company had borrowings totaling $673,000
under the second line of credit and no borrowings under the first line
of credit.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Actual results could differ materially
from those projected in the forward-looking statements as a result of the risk
factors set forth below under "Risks, Trends, and Uncertainties."
RESULT OF OPERATIONS - SECOND QUARTER OF FISCAL 1997 COMPARED TO SECOND QUARTER
OF FISCAL 1998:
Total net sales were $11.7 million for the second quarter of fiscal 1997
as compared to $13.5 million for the second quarter of fiscal 1998. Total net
sales to commercial customers decreased 9% from $8.1 million for the second
quarter of fiscal
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1997 to $7.4 million for the second quarter of fiscal 1998, primarily as a
result of the completion of an order for transceivers for a mobile phone system
in the second quarter of fiscal 1997, which accounted for approximately $.9
million of sales in the second quarter of fiscal 1997. Total net sales to
defense customers increased by 69% from $3.6 million in the second quarter of
fiscal 1997 to $6.1 million for the second quarter of fiscal 1998. The Company
believes the increased sales to the defense market are the result of the Company
achieving greater market share due to a decrease in the number of competitors,
as opposed to market growth. The Company does not expect defense sales to
increase significantly in the future. However, the Company intends to continue
to selectively pursue sales to certain defense customers.
Gross margin decreased from 37% of net sales in the second quarter of
fiscal 1997 to 36% of net sales in the second quarter of fiscal 1998. The
decrease in gross margin was partially due to increased labor-related overhead
expenses associated with a change in product mix.
Research and development expenses increased 21% from $1.1 million, or 9%
of net sales, in the second quarter of fiscal 1997 to $1.3 million, or 9% of net
sales, in the second quarter of fiscal 1998 reflecting the Company's continuing
investment in commercial product development. The Company expects research and
development expenses in dollars to continue to increase in future periods. See
"Risks, Trends, and Uncertainties - Dependence on Key Personnel."
Selling, general and administrative expenses increased from $1.7
million, or 15% of net sales, in the second quarter of fiscal 1997 to $2.1
million, or 15% of net sales, in the second quarter of fiscal 1998. The increase
was due to higher selling costs associated with the increased sales volume.
Interest income and other, net increased from $109,000 in the second
quarter of fiscal 1997 to $121,000 in the second quarter of fiscal 1998.
RESULT OF OPERATIONS - FIRST SIX MONTHS OF FISCAL 1997 COMPARED TO FIRST SIX
MONTHS OF FISCAL 1998:
Total net sales were $23.2 million for the first six months of fiscal
1997 as compared to $26.1 million for the first six months of fiscal 1998. Total
net sales to commercial customers decreased 15% from $16.3 million for the first
six months of fiscal 1997 to $13.9 million for the first six months of fiscal
1998, primarily as a result of the completion of an order for transceivers for a
mobile phone system in the first six months of fiscal 1997, which accounted for
approximately $5.0 million of sales in the first six months of fiscal 1997.
Total net sales to defense customers increased by 77% from $6.9 million in the
first six months of fiscal 1997 to $12.2 million for the first six months of
fiscal 1998. The Company believes the increased sales to the defense market are
the result of the Company's achieving greater market share due to a decrease in
the number of competitors, as opposed to market growth. The Company does not
expect defense sales
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to increase significantly in the future. However, the Company intends to
continue to selectively pursue sales to certain defense customers.
Gross margin decreased from 37% of net sales in the first six months of
fiscal 1997 to 36% of net sales in the first six months of fiscal 1998. The
decrease in gross margin was partially due to increased labor-related overhead
expenses associated with a change in product mix.
In the first quarter of fiscal 1998, the Company leased approximately
25,000 square feet of additional manufacturing space and has for the most part,
completed the improvements to this space and purchased the manufacturing
equipment to increase overall capacity. As of the beginning of October, the
Company has occupied the additional manufacturing space and begun production.
Even though the Company has increased overall capacity, there can be no
assurance that the Company will be successful in its efforts to generate orders
to utilize the additional capacity, or that net sales and gross margin will
increase. See "Risks, Trends, and Uncertainties - The High Degree of Fixed Cost
in the Manufacturing Operation."
Research and development expenses increased 16 % from $2.1 million, or
9% of net sales, in the first six months of fiscal 1997 to $2.5 million, or 9%
of net sales, in the first six months of fiscal 1998 reflecting the Company's
continuing investment in commercial product development. The Company expects
research and development expenses in dollars to continue to increase in future
periods. See "Risks, Trends, and Uncertainties - Dependence on Key Personnel."
Selling, general and administrative expenses increased from $3.6
million, or 15% of net sales, in the first six months of fiscal 1997 to $3.9
million, or 15% of net sales, in the first six months of fiscal 1998. The
increase was due to higher selling costs associated with the increased sales
volume.
Interest income and other, net increased from $253,000 in the first six
months of fiscal 1997 to $269,000 in the first six months of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through cash
flows from operations and sales of equity securities including the initial
public offering of common stock completed in December 1995 and January 1996,
which generated net proceeds of approximately $12.1 million.
The Company used cash in the quarter ended September 30, 1997 for
general operating purposes and for capital expenditures in connection with
activities directed at increasing capacity.
As of September 30, 1997, the Company had $4.4 million of cash and cash
equivalents, $8.8 million of short-term investments and $28.3 million of working
capital. The Company believes that the current capital resources combined with
cash generated from operations will be sufficient to meet its liquidity and
capital expenditure requirements at least through fiscal 1998.
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RISKS, TRENDS, AND UNCERTAINTIES
The following risk factors should be carefully reviewed in addition to the other
information contained in this Quarterly Report in Form 10-Q.
Potential Fluctuations in Quarterly Results. The Company's quarterly
results have fluctuated in the past, and may continue to fluctuate in the
future, due to a number of factors, including: the timing, cancellation or delay
of customer orders; the mix of products sold; changes in manufacturing capacity
and variations in the utilization of this capacity; the timing of new product
introductions by the Company or its competitors; the long sales cycle associated
with the Company's application-specific products; market acceptance of the
Company's and its customers' products; variations in average selling prices of
semiconductors; variations in manufacturing yields; changes in inventory levels
and other competitive factors. Any unfavorable changes in the factors listed
above or others could have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to maintain quarterly profitability in the future.
Continued Penetration of Commercial Markets; New Product Introductions.
The Company's ability to grow will depend substantially on its ability to
continue to apply its radio frequency ("RF") and microwave signal processing
expertise and GaAs semiconductor technologies to existing and emerging
commercial wireless communications markets. If the Company is unable to design,
manufacture and market new products for existing or emerging commercial markets
successfully, its business, operating results and financial condition will be
materially adversely affected. Furthermore, if the markets for the Company's
products in the commercial wireless communications area fail to grow, or grow
more slowly than anticipated, the Company's business, operating results and
financial condition could be materially adversely affected.
The High Degree of Fixed Costs in the Manufacturing Operation. The
Company's fixed costs consist primarily of investments in manufacturing
equipment, repair, maintenance and depreciation costs of such equipment and
fixed labor costs related to manufacturing and process engineering. The Company
has in the past and may in the future experience significant delays in product
shipments due to lower than expected production yields, and there can be no
assurance that the Company will not experience problems in maintaining
acceptable yields in the future. The Company's manufacturing yields vary
significantly among products, depending on a given product's complexity and the
Company's experience in manufacturing the product. To the extent that the
Company does not maintain acceptable yields, its operating results could be
adversely affected. In addition, during periods of decreased demand, high fixed
wafer fabrication costs could have a material adverse effect on the Company's
operating results
In addition, the Company has completed its new facility to house its
wireless subsystems manufacturing operations and has begun manufacturing
operations in the new facility during the third quarter of fiscal 1998. Even
though the Company has increased
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overall capacity, there can be no assurance that the Company will be successful
in its efforts to generate orders to utilize the additional capacity, or that
net sales and gross margin will increase.
Dependence on a Limited Number of OEM Customers. A relatively limited
number of OEM customers historically have accounted for a substantial portion of
the Company's sales. In fiscal 1997 and the six months ended September 30, 1997
sales to the Company's top ten customers accounted for approximately 66% and
71%, respectively, of total net sales. In the six months ended September 30,
1997, P-Com, and Hughes Network Systems accounted for 15% and 14% of total net
sales, respectively. The Company expects that sales of its products to a limited
number of OEM customers will continue to account for a high percentage of its
sales for the foreseeable future, although sales to any single customer are
subject to significant variability from quarter to quarter. Such fluctuations
could have a material adverse effect on the Company's business, operating
results and financial condition.
No Assurance of Product Performance and Reliability. The Company's
customers establish demanding specifications for performance and reliability.
There can be no assurance that problems will not occur in the future with
respect to performance and reliability of the Company's products. If such
problems occur, the Company could experience increased costs, delays in or
reductions, cancellations or rescheduling of orders and shipments, product
returns and discounts, and product redesigns, any of which would have a material
adverse effect on the Company's business, operating results and financial
condition.
Rapid Technological Change. The markets in which the Company competes
are characterized by rapidly changing technologies, evolving industry standards
and continuous improvements in products and services. There can be no assurance
that the Company will be able to respond to technological advances, changes in
customer requirements or changes in regulatory requirements or industry
standards, and any significant delays in the development, introduction or
shipment of products could have a material adverse effect on the Company's
business, operating results and financial condition.
Competition. The markets in which the Company competes are intensely
competitive and the Company expects competition to increase. Most of the
Company's current and potential competitors have significantly greater
financial, technical, manufacturing and marketing resources than the Company and
have achieved market acceptance of their existing technologies. The ability of
the Company to compete successfully depends upon a number of factors, including
the rate at which customers incorporate the Company's products into their
systems, product quality and performance, price, experienced sales and marketing
personnel, rapid development of new products and features, evolving industry
standards and the number and nature of the Company's competitors. There can be
no assurance that the Company will be able to compete successfully in the
future, which could have a material adverse effect on the Company's business,
operating results and financial condition.
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Dependence on Key Suppliers. Certain components used by the Company in
its existing products are only available from single sources, and certain other
components are presently available or acquired only from a limited number of
suppliers. In the event that its single source suppliers are unable to fulfill
the Company's requirements in a timely manner, the Company may experience an
interruption in production until alternative sources of supply can be obtained,
which could damage customer relationships or have a material adverse effect on
the Company's business, operating results and financial condition.
Dependence on Key Personnel. The Company's future success depends in
significant part upon the continued service of its key technical and senior
management personnel and its continuing ability to attract and retain highly
qualified technical and managerial personnel. In particular, the Company in the
past has experienced difficulty attracting and retaining qualified engineers and
thin-film microwave technicians. Competition for these kinds of experienced
personnel is intense, and there can be no assurance that the Company can retain
its key technical and managerial employees or that it can attract, assimilate or
retain other highly qualified technical and managerial personnel in the future
which could have a material adverse effect on the Company's business, operating
results and financial condition.
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PART 2 - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on August 13,
1997. The results of the voting were as follows:
Proposal 1: Election of the Board of Directors of the Company.
Nominee Votes For Votes Withheld
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Tamer Husseini 6,136,890 239,928
Robert C. Mullaley 6,136,389 240,429
William D. Rasdal 6,136,989 239,829
Charles P. Waite 6,136,989 239,829
William H. Younger, Jr. 6,136,989 239,829
Proposal 2: Approval of 250,000 share increase to 1994 stock option
plan.
Votes For: 4,638,417
Votes Against: 1,597,018
Votes Abstaining: 4,718
Proposal 3: Approval of automatic annual share increase to 1994 stock
option plan.
Votes For: 4,580,226
Votes Against: 1,654,829
Votes Abstaining: 5,098
Proposal 4: Ratification of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending March 31, 1998.
Votes For: 6,372,283
Votes Against: 1,090
Votes Abstaining: 3,445
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Item 6. Exhibits and Reports on Form 8-K
The following exhibit is included herein:
Exhibit 11: Statement re: Computation of earnings per share
Exhibit 27: Financial Data Schedule
The Company did not file any reports on Form 8-K during the three months ended
September 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Celeritek, Inc.
(Registrant)
Date: November 12, 1997 /s/ MARGARET E. SMITH
---------------------------
Margaret E. Smith, Vice President,
Chief Financial Officer and Assistant
Secretary
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EXHIBIT INDEX
Exhibit Description
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11 Statement re: Computation of earnings per share
27 Financial Data Schedule